Market Analysis for Dec 11th, 2003

If you're long, the markets are treating you extremely well today, especially since the E-mini indices have rocketed off of yesterday's lows. In the case of the March E-mini S&P that low was 1051.50, and in the case of the March E-mini Nasdaq it was 1375.50. The indices have rocketed in what amounts to just about 4 hours of trading to levels that are not far from the December highs. We're pushing 1067 in the E-mini S&P and 1411-12 or so in the E-mini Nasdaq.

The E-mini S&P March contract has two prior significant highs, the most recent one 1071.50 on the 9th and 1072.75 on the 3rd of December, and right now as we speak, with the indices right near their highs, it looks to me as though they're consolidating for one more pop to the upside. My next target for the E-mini March S&P is 1068.50. If it manages to accelerate above 1068.50, then we'll have a full-fledged test of the December highs, which to be frank I was not expecting after the decline from the December 3 high into yesterday's low, which happened to be about 20 S&P points.

To have thought we would have retraced the entire decline in just 4-5 hours of trading was not something I thought was likely. In fact, I would have considered that part of the topping process from the November-December timeframe. That topping process has not been invalidated, but if we do take out 1071.50 on the March S&P, at least on the S&P side the topping process will be invalidated and we'll be off to the races probably to 1080.

As far as the E-mini Nasdaq is concerned, and those of you who have seen the charts know there is a different pattern altogether -- a head-and-shoulders pattern -- the key level there is the level of the right shoulder. The resistance level of the right shoulder is 1430-32. Right now we're trading at 1411. If the index breaks above 1412-13 and sustains above those levels, then probably we will see 1430 in a hurry.

A break above the right shoulder at 1430 totally invalidates the head-and-shoulders top pattern, and we can look forward to a very bullish run, probably next week, that will take the index to new highs perhaps in the vicinity of 1470 in the March contract.

With regard to the QQQs, they also have the head-and-shoulders top pattern, and you're approaching very important resistance levels as we speak. 35.07-.12 represents the 50% recovery of the entire move from the December 2 high of 36.12 to yesterday's low at 34.13.

So if the Qs, which we do expect to rally probably one more time to 35.05-.09, somewhere in there, if they manage to rocket right past 35.13-.14, then I think you're headed for the right shoulder just as you are on the March Nasdaq. The right shoulder is at 35.46. If the Qs can get through 35.46, they are going to explode even further to the upside, retest the high at 36.12 and probably go to 36.40.

Having said that, if the Qs reverse from the 35.10 area, they need to break down below 34.83 to indicate to me the recovery rally is over.

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